Microfinance to the Rescue

People on Papua New Guinea's remote Manam Island and Madang Province are rebuilding after a disastrous volcanic eruption thanks to better banking solutions.

Manam Island, Papua New Guinea - Following devastating volcanic eruptions in October 2004 on remote Manam Island, and the subsequent complete evacuation to the mainland of the island's 10,000 inhabitants, many of the islanders including the Baliau people have returned home and are trying to rebuild their lives.

Remnants of the eruptions are clearly visible in the threatening brown and infertile lava plains that mar the island. What cash-generating crop could possibly be grown here? What product produced? Peter Muriki thinks he's got the answer. "Devastated as it is, Manam can still sell copra, some cocoa and fish as a means of survival," said Muriki.

A Manam Islander himself, Muriki is also the executive director of the Bogia Cooperative Society (BCS) which has been canvassing for community saving schemes in isolated and rural places like Manam. BCS calls these saving groups community development centers (CDCs).

In houses made of woven coconut leaves, with support from BCS, men and women from Baliau village formed themselves into cash saving groups. In July 2010, there were five groups altogether, each comprising 70 to 100 members.

"At the end of each week, or 2 weeks, or 1 month, members will come together in their respective groups to deposit their savings with the group's teller," explained Michael Rupunae, a member of the savings scheme on Manam Island. "It will then be the teller's job to deposit the savings with the bank at Madang on the mainland."

Rupunae makes it sound simple, but banking at Madang town requires an hour of open boat travel from Manam Island to Bogia on what is usually a rough sea channel. Then the teller will take a 3-hour mini-bus ride to Madang, 200 kilometers of road that used to be paved but is now dotted with pot holes.

According to Rupunae, it is worth it. "No more should we rely on others," he said. "This is one way we can help ourselves."

Enterprise and Employment

Twelve months since BCS received financial assistance from the ADB and AusAID-supported Microfinance and Employment Project, it has been able to establish 52 CDCs with over 5,000 members across the province of Madang. BCS trainers traveled to rural communities to provide advice on saving, budgeting, debt management and microfinance services. Over 2,000 people underwent financial literacy training - organized by Muriki and funded and supported by the project - to help them make more informed banking choices.

Soon after their financial literacy training, Manam Islanders went into saving mode. All five CDCs from Baliau saved between Kina (K) 10,000 to K20,000 (about US$3700-US$7400) by July 2010.

Rupunae and his members admit that finding money to save was a struggle. "It is hard to save here on the island, but after what we have gone through over the past 5 or 6 years, we know that this savings scheme could offer us some economic independence," said Rupunae.

The development of good financial services is a key component of the Government of Papua New Guinea's medium-term strategic framework.The strategy emphasizes the importance of financial services for economic and social development in the country, and recognizes the need to improve access to financial services particularly in rural areas.

"Better access to financial services will assist the poor to create microenterprises and generate broad-based income," says Eugenue Zhukov, regional director of ADB's office in Australia. "This will lead to new employment opportunities, a key development objective of PNG."

Creative Credit

However, saving is only part of the solution. "Very limited access to credit continues to be a serious impediment to private sector development and sustainable growth in PNG," says Eugenue Zhukov.

BCS is planning to make the transition from savings to lending, according to Muriki. "We would really like to get into microloans. Some people are giving up savings because they are not seeing the other side of microfinance." The next step will be finding a lending partner, or, failing that, going into lending on its own.

Muriki is already working out some ideas on how this could be done. "These are some ideas we are working on, activities in which a bank, or anyone else, can start something and then let people run it," he said.

Savers on Manam agree that lending would help boost their economic revival. "Cash flow is our biggest challenge," says Andrew Roana, chairman of one of five CDCs in Baliau village on Manam Island. "Sometimes our copra buyer runs out of cash, and with the high cost of the dinghy (open boat), there's no way we could afford to ship our produce to the mainland."

Roana's CDC wants to go into small business enterprises once their savings could sustain microloans. Topping their list of potential activities are to start small poultry farms and piggeries and buy a dinghy of their own.

Once they are able to take out loans, other CDCs on the island are considering income generating ideas like running a small guesthouse, acquiring fishing gear, or starting a second-hand clothing outlet on the island.

Once the Bogia Cooperative Society moves from savings to lending, the opportunity private enterprise offers to economically-deprived areas like Manam Island could be substantial. Managed well, it could even lead to a small economic revolution in the development of small but viable cottage industries in Madang's rural and remote communities.